Almost every day, the question is posed to us “How is the market?” It’s a loaded question, so I felt some general commentary might be helpful. This is coming from our very valuable Cromford® Report Data.
We are hearing complaints from sellers these days regarding low-ball offers submitted by buyers. It appears that there are many buyers who are either sitting on the sidelines expecting prices to drop excessively, or placing offers at considerably less than list price. If you are selling or buying today, here are a few differences between “the crash” and today’s buyer’s market:
1. Fewer Desperate Sellers
The buyer’s market that defined the period from 2006 through mid-2009 was fueled by sellers who were desperate to sell. Many were at risk of default or had already defaulted on their payments. Today’s sellers are not in a desperate situation. In fact, Arizona has one of the lowest delinquency rates in the nation. Many sellers have been patiently waiting while maintaining their mortgage until prices reach an acceptable level. They are not desperate enough to take a low-ball offer.
2. Fewer Lender-Owned and Short Sale Properties Listed for Sale
By 2009, 70% of sales were foreclosures or short sales. The excessive competition from these deeply discounted properties forced traditional sellers to accept low-ball offers in order to sell to the few buyers that were buying at the time. Today however, distressed listings only account for 12% of sales and their numbers are declining rapidly, placing very little pressure on non-distressed sellers to discount their home.
3. Better Job Market
In 2008 the unemployment rate had started to increase and by 2010 Arizona reached the peak of unemployment at over 10%. As of April, Maricopa County’s unemployment rate is a mere 5.2%, similar to where it stood in 2003. Since jobs allow sellers to maintain their payments and buyers to qualify for loans, declining unemployment is a positive trend that stabilizes both supply and demand.
These three points may help our readers understand that the buyer’s market of today is not similar to the crash of 2008. In response to those thinking we are facing another “crash”, we offer the chart below that shows price behavior in relation to the Cromford® Market Index. The index reached its historical low in November 2007 at an abysmal 26.5, today it is 85.9 which is similar to the second half of 2010. Typical price behavior at this sustained measurement is stabilization or slight decline, not a significant downfall as happened in 2008 (after an unusually long and extreme buyer’s market). Buyers can reasonably expect today’s sellers to be open to paying for certain closing costs, home warranties, necessary repairs and a little price negotiation. However, their desperation level will not support the low-ball offer strategy of the past.